S&P affirms AES Red Oak bonds

Standard & Poor's said that it affirmed the B+ rating on AES Red Oak LLC's $384 million senior secured bonds and revised its outlook to stable from positive following the agency's annual review of the project.

S&P said the rating on the bonds is constrained by the rating Williams Power Co. Inc. - to whom AES Red Oak sells its entire capacity - because in the absence of the purchased-power agreement with Williams, AES Red Oak would be forced to operate under merchant conditions and would likely be unable to service its debt in a timely manner. The rating is further constrained by exposure to litigation with its engineering, procurement and construction contractor Raytheon Co. and low electricity margins in the region in which the project operates, which render the purchased-power agreement above current market.

The ratings are supported by a purchased-power agreement for the first 20 years of the bond term, a $35 million letter of credit posted by Williams that offers limited protection against Williams' credit risk and a six-month debt service reserve that provides limited liquidity, the agency said.

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